ICRA conducted a conference call on 28 May 2024 to discuss the financial results for the quarter ended March 2024. Ramnath Krishnan, MD and Group CEO, ICRA addressed the call:

Highlights:

The company has delivered strong results in FY2024. The overall topline growth was 10.6% at a consolidated level. The ratings business delivered a growth of 12% and the analytics business delivered a growth of 8.6% in FY2024.

Despite significant investment in people, technology and related infrastructure, the company was able to deliver a strong growth in profit after tax by 11.3%.

Ratings delivered strong revenue growth as bond insurances, bank credit and securitization continued their healthy growth trajectory.

Analytics growth was driven by focus on growing banking and risk business and the recent acquisition of D2K Technologies.

The expenses for the year includes impact of consolidation of D2K for 5 months, arbitral award and D2K acquisition cost

The company has undergone a transformative journey bolstering credibility and fortifying processes enhancing people strength and insights.

Through investments in cutting edge technology, the company has become more agile, while talent development initiatives have ensured a diverse and empowered workforce.

Pragati Development Consulting Services Limited (PDCSL), a wholly owned subsidiary of ICRA, has received the SEBI’s approval for registration as a Category-I ESG Rating Provider (ERP). The company recognises environmental, social, and governance (ESG) as a core growth area and are committed to integrating ESG principles into our operations and services. This development positions ICRA group among the few entities offering holistic Risk Management Solutions including ESG ratings and scores.

With the acquisition of D2K Technologies, the company aims to transform ICRA analytics into a diversified product company.

The company remains committed to mission of providing superior ratings and comprehensive financial services to clients both within the country and outside.

It will continue to pursue organic and inorganic growth opportunities focusing on both expansion and sustainability, while nurturing talent and leveraging technology to drive success.

The company has done significant corrections in terms of aligning its pay structures with the market during last one or two years. The company will continue to see spends over the next two to three years essentially will be in the technology area.

The company is keen to grow non-rating business with the focus on diversification.

The company expects GDP growth at below 6.5% in H1FY2025 and improving to 7.2% in H2FY2025 and overall GDP growth to land at 6.5% in FY2025.

Ratings business

The bank credit outstanding grew significantly at 16.3% and bond insurances at 17.2% in FY24 as the overall cost of borrowing in the global market remained elevated and large corporates preferred to borrow domestically.

On an incremental flow basis, the bank credit reached an all-time high level and so did the domestic corporate bond insurances.

A buoyant economy supported by government''s infrastructure spending and urban consumption supported the demand for credit.

Banks issued bonds to fund their own credit growth, while corporates and NBFCs took benefit of moderate yields.

The commercial paper outstanding grew 99.9% on year, as security broking firms issued commercial paper to fund their working capital requirements and margin trading facility.

Securitization volumes in the market grew 25%, which is after excluding the impact of the exit of a large HFC.

Existing large originators securitized higher volumes and new originators also came in as NBFCs and HFCs grew their book significantly driven by an uptick in consumption.

ICRA''s Revenue growth in FY24 reflects the trends in bank credit growth and Market debt

Ratings business outlook for FY25

The company expects the bank credit growth may face some headwinds with higher risk weights for certain high growth consumption segments as well as their elevated credit to deposit ratio for which the regulator has expressed some concern.

Bond insurances are likely to benefit from competitive funding cost domestically, which may additionally be supported by a possible rate gut by RBI sometimes later in FY25.

The geopolitical challenges are quite likely to keep global borrowing options dearer.

The growth in securitization would depend on the extent to which NBFCs and HFCs are able to grow their books.

Given the higher risk weights for bank lending to NBFCs, securitization could become a preferred funding source for NBFCs.

Government''s continued thrust on infrastructure, private sector capex in select sectors, pick up in exports and the interest rate trajectory would be critical for a sustained growth in credit market.

Rating operations

The company finished the year FY24 with further improvement in the rating accuracy metric namely overage default position or ADP. The ADP was 94% for FY2024 compared with 93.3% in the previous year and a long period average of 76%. The higher the ADP, the more accurate are ratings collectively.

The cumulative default rate and rating stability are also seemed to be improving consistently over the past few years. The number of instances of defaults dipped to 5 in FY24 compared with 22 in FY23 and 42 in FY22.

The large rating change rate also reduced to 7% in FY24 from 1.4% in FY23 and 2.3% in FY22.

The company continues to be the preferred agency amongst leading issuers in the securitization space and add new clients.

The company continues to expand research and initiate strategic market outreach and events in H2FY2024.

Analytics business

Knowledge services continued to drive growth of analytics business. The company was able to further expand value added services. The company expects that focus will remain on business transformation, data analytics and technology services.

The market data business saw strong regulatory push for stress testing, risk management data, transparency and reporting which continue to drive volumes for H2FY24.

The company expanded coverage to provide newer services like stress testing and also entered into tie ups with global data providers like Bloomberg, Moodys analytics.

The Outlook remains robust driven by trends towards cloud-based information tools and related data products and more of value added services rather than pure data. This is expected to drive consolidation of services and products going forward.

Risk management business

The Risk Management Solutions saw a robust growth in H2FY24 and particularly Q4FY24, driven by increasing spend from banks. The NBFC segment also witnessed good demand in H2 and Q4.

Acquisition of D2K which has sophisticated tools for credit monitoring and early warning signals has further strengthened position of the company in the risk management segment.

An increased regulatory focus on automation of credit life cycle and calibration of risk management practices of NBFCs and strengthening of the scale based regulations continue to drive volumes for FY24.

The outlook for risk management business continues to remain robust. The company sees increased opportunities for cloud-based tools.